Rise of Chinese currency to take time

One of the new central bank’s first actions was to encourage the development of a market in trade acceptances.

It did so by using repurchase agreements to buy for its own account the majority of trade acceptances issued in New York.

As a result of this official support, private investors gained confidence in the new instrument.

And, with their growing participation, the market in trade acceptances became more liquid.

Private investors

New York surpassed London as a source of trade finance by the mid-1920s.

At this point, the Fed could curtail its intervention and give the market over to private investors.

And where private investors led, central banks followed. In the second half of the 1920s they held more of their reserves in dollars than sterling.

Thus, it took barely a decade to overtake the incumbent.

Chinese officials have targeted 2020 as the date by which both Beijing and Shanghai should become leading international financial centres.

Can the renminbi become a major international currency in as little as a decade? Only time will tell.

Eichengreen is Professor of Economics at the University of California, Berkeley.